“This is a day which could very much not go out with the whimper many market makers would be expected to hope for”, former trader Richard Breslow wrote Thursday, noting that “there are tons of assets to watch” even as most market participants would probably prefer to close up (virtual) shop for the long holiday weekend.
There’s plenty to be concerned about. Or excited about, depending on which side of the trade you’re on and whether you’re inclined to revel in the abject misery of others. On that latter point, we’ll get jobless claims, which will likely add millions to the ~10 million Americans who filed for unemployment benefits over the previous two weeks.
OPEC+ will try to forge some manner of rescue package for an oil market struggling not just with a dearth of demand, but no demand at all, to speak of. Aramco delayed the release of April OSPs again, apparently until Saturday. The ruble is up six days in a row.
The US is now approaching a half-million COVID-19 cases.
But the S&P is 23% higher off the lows, in typical bear market rally fashion. Fingers crossed, but you’re reminded that these types of explosive upside moves are not uncommon in dicey environments and can be followed by nauseating swoons back lower.
Signposts offering hope earlier this week (e.g., falling growth rates for infections and hospitalizations in key “hot spots”) are still there, but some of the more recent numbers remind us that while there’s a light at the end of this tunnel, this is still one long tunnel.
“We have revised our economic forecasts and expect the global economy to contract by 2.6% in 2020”, Rabobank wrote Thursday, calling for a 6.4% yearly contraction in the US, and declines of 7.2% and 6.8% in Italy and the UK, respectively. “If the lockdowns are successful in containing the virus, we expect to see the first (tentative) signs of a recovery in Q3 2020, hence, we do not include a second wave of infections in late 2020, nor do we assume an extension of the lockdowns beyond Q2”, the bank says, adding the obvious: “How quick the recovery will be after the coronacrisis depends on how fast people get back to work and whether productivity growth is permanently damaged”.
It’s probably not entirely safe to assume there won’t be a second wave, although the timing is, of course, indeterminate. On Thursday, for example, the Korean CDC said COVID-19 may “reactivate” in cured patients.
The chart below is the Oxford COVID-19 Government Response Tracker, which “aims to track and compare government responses to the coronavirus outbreak worldwide rigorously and consistently”. It’s scaled from 0-100, with 100 being the most stringent.
Obviously, the longer the world’s major economies are “blue” (if you will), the longer it will take for economic activity to recover its joie de vivre.
Jerome Powell will participate in a virtual event on Thursday, and that will be watched (or listened to) closely, although like the Fed minutes, it’s hard to imagine what kind of additional color would be market-moving at this juncture short of an actual announcement of new facilities or the suggestion that such facilities are in the offing.
Meanwhile, Mitch McConnell, Chuck Schumer, Nancy Pelosi and Steve Mnuchin are working to come to an agreement on more funding for small business loans and the Fed is seen announcing the details of a vehicle for mid-sized enterprises as well.
And don’t forget about Europe, where finance ministers are still trying to get over old beefs in the interest of saving lives – a tough task, apparently. Christine Lagarde isn’t amused. “EU members can’t avoid the fallout if one suffers”, she chided.
“The Eurogroup finance ministers will get together again and aim at some kind of a deal, but as my colleague Yvan Mamalet put it, ‘no bazooka’ is likely”, SocGen’s Kit Juckes said Thursday. “It’s worth stressing that a big overall fiscal reaction to the crisis is more important than a joined-up one, but the sense that an opportunity is being missed to send a strong message of unity, is clear”.
Yes, it is. And the same will be said of the OPEC+ pow wow if, for whatever reason, it doesn’t produce a “convincing” consensus, although you’re reminded that no cut will be large enough to completely offset the demand destruction evidenced in high frequency indicators. 10 million barrels/day is the expectation – anything less would be a disaster.
“If you like things higher you have faith in the powers that be going all-in, and not letting up, to support prices – that this is all going to be ‘temporary’ is a convenient belief to espouse”, Bloomberg’s Breslow went on to write, in his Thursday missive. “Those looking for the downward trends to resume see the economic devastation as life- altering and financial plumbing still suspect”.
That, Breslow notes, means “we are back to the glass-half-full or -empty arguments”.
